Avoiding Credit Card Debt

There are plenty of positives about carrying plastic instead

of cash. Convenience, frequent flier miles and boosting your credit rating are a few. However, as so many Americans have learned, credit cards are only advantageous if used correctly. It’s no secret that credit card debt has emerged as a significant financial concern for millions of card holders. Getting out of credit card debt is an arduous task. Avoiding it in the first place is much easier, if you have the self-discipline to follow a few simple rules.

1. Choose wisely: Frequent flier miles or cash back on purchases may come at a high price. Find out the Annual Percentage Rate (APR), the interest rate that will be added monthly to any outstanding balance. Also see if the rates are fixed or variable. Next, find out what the grace period is and review all fees, especially transaction fees. Then look for any other charges such as special delinquency rates, which can be very high. Read the fine print carefully and, remember, credit card companies make a lot of money under the assumption that you won’t pay your bills in full and on time every month. Shop around and compare cards. CreditCards.com is one of several places to make comparisons.

2. Establish good credit card spending habits: How you think about, and use, your credit cards are primary factors that will determine whether or not you end up in credit card debt. A credit card should be a convenient means of spending money that you have readily available. It is convenient because you don’t have to carry cash around. It is not a free pass to spend money that you don’t have or will be borrowing.

Keep a budget and know what you have available to cover expenditures. Forget the spending limit the card gives you and establish your own based on your budget. Then use the card for major purchases or in emergencies. Rule of thumb: If you do not have money available in liquid assets to cover the purchase, don’t use the card.

3. Pay in full at the end of each month: This should be easy to do if you follow the rule above. If you find that you cannot pay the full amount, put the plastic away and use cash until the following month when you have the opportunity to get caught up.

4. Keep good records: Keep all credit card receipts and reconcile them with your statement each month. Read statements carefully to see if there are charges that you do not recognize. If there are errors, report them to the credit card company immediately. Also make sure you have the numbers of all credit cards in a handy place in case you lose one or have one stolen.

If you can get into good credit card habits early on and stick with them, you will avoid having to dig yourself out of credit card debt.